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The total market value of Okefenokee Real Estate Company's equity is $12 million, and the total value of its debt is $8 million. The treasurer estimates that the beta of the stock currently is 0.5 and that the expected risk premium on the market is 6%. The Treasury bill rate is 5%.
What is the required rate of return on Okefenokee stock?
What is the beta of the company's existing portfolio of assets? The debt is perceived to be virtually risk-free.
Estimate the weighted-average cost of capital assuming a tax rate of 20%.
Estimate the discount rate for an expansion of the company's present business.
Suppose the company wants to diversify into the manufacture of rose-colored glasses. The beta of optical manufacturers with no debt outstanding is 1.5. What is the required rate of return on Okefenokee's new venture? (You should assume that the risky project will not enable the firm to issue any additional debt.)
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Why is depreciation (as well as amortization and depletion) considered a noncash charge?
What discount rate would lead to the same NPV for both projects? If the appropriate cost of capital is 10%, which project should be accepted?
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Bond D is a 6 percent coupon bond currently selling at a discount. The bond makes annual payments, have a YTM of 7 percent, and have 10 years to maturity.
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You currently own a 30 year Treasury Bond at 4% interest, paid semiannually. The market interest rates for like securities rose to 5%. Would your bond sell for a premium or a discount?
The spectrometer would have no effect on revenues, but it is expected to save the firm $25,000 per year in before tax operating cost, mainly labor. The firm's marginal federal-plus-state tax rate is 40%. If the project's cost of capital is 10%, shoul..
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